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CHAPTER 1. BANKRUPTCY 31 CARA utility. 39 I show results with risk aversion parameters of α =2.5 × 10 −5 (low risk aversion), α =5.0 × 10 −5 (moderate risk aversion), and α =7.5 × 10 −4 (high risk aversion). Dividing by the median wealth level of $40,318, these parameters can be interpreted as relative risk coefficients of γ = 1, 2, and 3. Household-level medical cost distributions are constructed using individual-level medical cost distributions for age- by-sex-by-insurance status cells in the 2005 MEPS. The markup for moral hazard is µ1 = 0.56, the value implied by the RAND health insurance experiment price elasticity of -0.22 in an arc elasticity framework (?). The administrative load factor is set to µ2 =0.1 for households with employer sponsored insurance and µ2 =0.5 for the uninsured and households in the non-group market. 40 I solve for the cross- subsidization parameter µ3 endogenously using the cost distributions of uninsured households in the model. In Appendix Section 1.10.3, I discuss the construction of the medical cost distributions and premiums in more detail. I show that the calibrated premiums closely match quoted premiums in the individual market. 1.8 Puzzles and Policy In this section of the paper, I use the micro-simulation model to investigate how bankruptcy insurance sheds light on puzzles in the health policy literature and to examine implications of this mechanism for the design of health insurance policy. 1.8.1 Puzzles Puzzle 1: Why are 47 million individuals uninsured? Explaining why households are uninsured is a central puzzle for scholars of health insurance. In his review of the literature ? writes, “there are a variety of hypothe- ses for why so many individuals are uninsured, but no clear sense that this set of explanations can account for the 47 million individuals.” Bankruptcy insurance is a 39 Using a CARA specification avoids the problems associated with non-positive wealth. Calibrations with CRRA utility and a consumption floor generate stronger results. 40 This values are take from ?.
CHAPTER 1. BANKRUPTCY 32 compelling additional explanation. I used regression analysis to quantify the impor- tance of this mechanism in the sections above. I use the micro-simulation model for an alternative perspective. Table 1.10 shows the percent of insured and uninsured individuals predicted by the model to purchase a $2,000 deductible plan. Column 1 shows these predicted values from a simulation where there is no bankruptcy insurance. Column 2 adds bankruptcy insurance to the model. Without bankruptcy, insured and uninsured individuals are difficult to separate. Using the variation in health risk, administrative costs, and tax preferences, the model can only separate predicted coverage by 8 to 28 percentage points. Because there are large differences in seizable assets between these groups, accounting for bankruptcy substantially improves the explanatory power of the model, expanding the gap in predicted coverage to 43 to 54 percentage points. Bankruptcy insurance thus to increases the gap in predicted coverage by 14 to 46 percentage points. Puzzle 2: The low take-up of high deductible plans A second puzzle is the low take-up of high deductible health plans (HDHP) by the uninsured. HDHPs were intended by their proponents to expand insurance coverage, yet despite offering low premiums they have not been successful in this regard (?). Crowd-out from implicit insurance is an appealing explanation for this failure. Be- cause the median uninsured household has less than $5,000 in seizable assets, HDHPs are largely redundant to the implicit insurance they already hold. Figure 1.10 makes this case quantitatively, plotting the percent of uninsured households projected to purchase insurance by deductible level. Without bankruptcy, the probability of purchase increases sharply from 19 percent for a $1,000 deductible plan to 43 percent for a $5,000 deductible plan, as the concavity of utility makes insurance more valuable at higher deductible levels. With bankruptcy, this increase is virtually eliminated, rising from 2 percent for a $1,000 deductible plan to only 6 percent for a $5,000 deductible contract, a full 37 percentage points below the projected value without bankruptcy.
Page 1 and 2: ESSAYS IN PUBLIC FINANCE AND INDUST
Page 3 and 4: I certify that I have read this dis
Page 5 and 6: insurance choice. Among other thing
Page 7 and 8: Acknowledgements I am deeply thankf
Page 9 and 10: Contents Preface iv Acknowledgement
Page 11 and 12: 2.5.3 The Value of Plan Choice ....
Page 13 and 14: List of Tables 1.1 Asset Exemption
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Chapter 3 Private Coverage and Publ
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CHAPTER 3. MEDIGAP 119 be of intere
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CHAPTER 3. MEDIGAP 123 have benefit
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CHAPTER 3. MEDIGAP 128 We use boots
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CHAPTER 3. MEDIGAP 134 3.6.2 Causal
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CHAPTER 3. MEDIGAP 136 3.6.3 Robust
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CHAPTER 3. MEDIGAP 140 (10000,11000
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